SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended................................................. 09-30-97
Commission File Number................................................ 2-83157
SOUTHEASTERN BANKING CORPORATION
--------------------------------------------------
(Exact name of registrant as specified in charter)
GEORGIA 58-1423423
- ------------------------------ -------------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1010 NORTHWAY STREET
DARIEN, GEORGIA 31305
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (912) 437-4141
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING
- ----- ------------------
Common Stock - $1.25 Par Value 3,580,797 Shares at 10-31-97
THIS DOCUMENT CONSISTS OF 14 PAGES.
THE EXHIBIT INDEX IS LOCATED AT PAGE 13.
<PAGE>
<TABLE>
<CAPTION>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
ASSETS 9/30/97 12/31/96
------------- -------------
<S> <C> <C>
Cash and due from banks $ 12,659,680 $ 15,415,525
Federal funds sold 14,065,000 17,090,000
------------- -------------
Cash and cash equivalents 26,724,680 32,505,525
Investment securities:
Held-to-maturity (market value of approximately
$20,804,000 and $23,172,000 at September 30, 1997
and December 31, 1996) 20,129,557 22,321,326
Available-for-sale, at market value 88,361,105 83,576,219
------------- -------------
Total investment securities 108,490,662 105,897,545
Loans, gross 190,216,796 187,380,335
Unearned income (3,724,117) (3,641,146)
Allowance for loan losses (3,696,238) (3,734,527)
------------- -------------
Loans, net 182,796,441 180,004,662
Premises and equipment, net 7,860,406 8,500,387
Intangible assets 3,135,358 3,395,889
Other assets 5,745,754 5,521,610
------------- -------------
Total assets $ 334,753,301 $ 335,825,618
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits $ 49,444,174 $ 54,751,222
Interest-bearing deposits 241,094,479 239,601,758
------------- -------------
Total deposits 290,538,653 294,352,980
U. S. Treasury demand note 2,884,912 1,800,366
Note payable 275,000 1,450,000
Other liabilities 4,105,139 4,218,645
------------- -------------
Total liabilities 297,803,704 301,821,991
------------- -------------
Stockholders' equity:
Common stock - $1.25 par value; authorized
10,000,000 shares; issued and outstanding 4,475,996 4,475,996
3,580,797 shares
Additional paid-in-capital 1,391,723 1,391,723
Retained earnings 31,098,924 28,409,683
------------- -------------
Realized stockholders' equity 36,966,643 34,277,402
Unrealized losses on investment securities, net (17,046) (273,775)
------------- -------------
Total stockholders' equity 36,949,597 34,003,627
------------- -------------
Total liabilities and stockholders' equity $ 334,753,301 $ 335,825,618
============= =============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
QUARTER ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30,
1997 1996 1997 1996
------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $ 5,283,022 $ 5,159,778 $ 15,489,668 $ 14,875,656
Federal funds sold 203,119 52,075 576,705 394,144
Investment securities:
Taxable 1,397,171 1,452,539 4,189,708 4,015,644
Tax-exempt 266,198 328,330 831,350 966,616
------------ ------------ ------------ ------------
Total interest income 7,149,510 6,992,722 21,087,431 20,252,060
------------ ------------ ------------ ------------
Interest expense:
Deposits 3,009,042 2,923,461 8,776,711 8,498,696
U. S. Treasury demand note 16,063 16,611 49,279 42,411
Note payable to bank 5,880 28,859 40,880 106,585
------------ ------------ ------------ ------------
Total interest expense 3,030,985 2,968,931 8,866,870 8,647,692
------------ ------------ ------------ ------------
Net interest income 4,118,525 4,023,791 12,220,561 11,604,368
Provision for loan losses 330,000 310,000 1,385,000 910,000
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 3,788,525 3,713,791 10,835,561 10,694,368
------------ ------------ ------------ ------------
Other income:
Service charges on deposit accounts 784,773 807,663 2,293,014 2,328,214
Investment securities gains 7,000 (5,197) 20,327 (17,235)
(losses), net
Other operating income 166,223 174,764 546,656 667,949
------------ ------------ ------------ ------------
Total other income 957,996 977,230 2,859,997 2,978,928
------------ ------------ ------------ ------------
Other expense:
Salaries and employee benefits 1,639,103 1,652,497 4,939,785 4,856,690
Net occupancy and equipment 527,349 546,000 1,556,335 1,535,119
Other operating expense 645,916 718,342 2,242,309 2,166,125
------------ ------------ ------------ ------------
Total other expense 2,812,368 2,916,839 8,738,429 8,557,934
------------ ------------ ------------ ------------
Income before income taxes 1,934,153 1,774,182 4,957,129 5,115,362
Income tax expense 624,190 549,262 1,587,894 1,578,518
------------ ------------ ------------ ------------
Net income $ 1,309,963 $ 1,224,920 $ 3,369,235 $ 3,536,844
============ ============ ============ ============
Net income per share based on
3,580,797 shares outstanding $ 0.38 $ 0.34 $ 0.94 $ 0.99
============ ============ ============ ============
Dividends per share $ 0.06 1/3 $ 0.06 $ 0.19 $ 0.18
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
1997 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,369,235 $ 3,536,844
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,385,000 910,000
Depreciation 779,411 746,691
Amortization and accretion, net 215,401 241,069
Deferred income tax benefit (16,032) (351,985)
Investment securities (gains) losses, net (20,327) 17,235
Net gains on sales of other real estate owned (56,661) (109,381)
Changes in assets and liabilities:
Increase (decrease) in other assets 20,862 (414,369)
Increase in other liabilities 101,342 772,838
------------ ------------
Net cash provided by operating activities 5,778,231 5,348,942
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of investment securities:
Held-to-maturity 3,698,900 2,490,700
Available-for-sale 24,166,214 23,503,724
Proceeds from sales of investment securities:
Available-for-sale 6,377,250
Proceeds from sales of other real estate owned 504,726 360,034
Purchases of investment securities:
Held-to-maturity (1,506,214) (2,333,834)
Available-for-sale (28,526,287) (48,911,828)
Net increase in loans (4,879,425) (17,772,119)
Additions to premises and equipment, net (217,367) (723,427)
Net funds received in branch acquisitions 19,497,817
------------ ------------
Net cash used in investing activities (6,759,453) (17,511,683)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in demand, NOW, and
savings deposits (5,139,119) 12,598,605
Net increase (decrease) in certificates of deposit 1,324,792 (8,278,880)
Net increase in U. S. Treasury demand note 1,084,546 2,101,964
Payments on note payable (1,175,000) (1,075,000)
Cash dividends paid (894,842) (847,455)
------------ ------------
Net cash provided by financing activities (4,799,623) 4,499,234
------------ ------------
Net (decrease) increase in cash and cash equivalents (5,780,845) (7,663,507)
Cash and cash equivalents at beginning of year 32,505,525 25,287,615
------------ ------------
Cash and cash equivalents at September 30 $ 26,724,680 $ 17,624,108
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
1. ACCOUNTING AND REPORTING POLICY FOR INTERIM PERIODS
All adjustments necessary to a fair statement of the results for the
interim periods presented have been made. These adjustments include
estimated accruals for various fringe benefit and other transactions
normally determined or settled at year-end. These adjustments are of a
normal, recurring nature.
4
<PAGE>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southeastern Banking Corporation (the Company) is a bank holding
company headquartered in Darien, Georgia. Its two subsidiaries, Southeastern
Bank and Southeastern Bank of Florida, operate full-service banking offices in
southeast Georgia and northeast and central Florida. Southeastern Bank (SEB), a
state banking association incorporated under the laws of the State of Georgia,
operates from its main office in Darien and its branch offices in Douglas,
Eulonia, Folkston, Hazlehurst, Hoboken, Kingsland, Nahunta, Nicholls, St. Marys,
and Woodbine. At September 30, 1997, SEB had total assets of approximately
$259,995,000.(1) Southeastern Bank of Florida (SEBF), a state banking
association incorporated under the laws of the State of Florida, operates from
its main office in Alachua and its branch offices in Callahan, Gainesville,
Hilliard, Jonesville, and Yulee. SEBF acquired the Callahan, Hilliard, and Yulee
offices of Compass Bank in North Florida's Nassau County on February 15, 1996.
Geographically, Nassau County borders Camden and Charlton Counties in South
Georgia where SEB has offices. SEBF received approximately $22,982,000 in assets
and assumed approximately $23,709,000 in deposit and other liabilities. At
September 30, 1997, SEBF had total assets of approximately $75,448,000.(1) Both
SEB and SEBF provide traditional deposit and credit services to individual and
corporate customers.
On October 10, 1997, the Company signed a definitive agreement to sell
its three offices in Alachua County to First National Bank of Alachua (FNB). The
sale of these locations will enable the Company to concentrate its resources and
strengthen its presence in its northeast Florida and southeast Georgia markets.
Provided all necessary regulatory approvals are obtained, the transaction is
expected to close in the first quarter of 1998. Alachua County deposits
assumable by FNB totaled approximately $36,385,000 at September 30, 1997.
Total assets declined $1,072,317 or 0.32% at September 30, 1997 when
compared to December 31, 1996, after increasing $31,450,000 or 10.59% during the
same period in 1996. The 1996 increase was largely attributable to the
acquisition of the Nassau County branches. The Company's earning assets
represented approximately 91.22% of total assets at September 30, 1997 compared
to 90.19% at September 30, 1996.
- ----------------------
(1) Stand-alone basis
LOANS
Net loans grew $2,753,490 or 1.50% at September 30, 1997 compared to
December 31, 1996. During the same period last year, net loans grew $19,808,275
or 11.98%. The 1996 growth was aided by the acquisition of the Nassau County
branches. The net loans to deposit ratio, 64.19% at 9/30/97, was down 26 basis
points when compared to September 30, 1996 and up when compared to the 62.42%
ratio at December 31, 1996. At September 30, 1997, nonaccrual loans represented
0.50% of net loans, a 13 basis point increase over December 31, 1996. Three
loans comprised 70.48% of nonaccrual loans at September 30, 1997. Management
anticipates that nonaccrual loans will decline moderately during the fourth
quarter of 1997. The percentage of total nonperforming loans to net loans was
0.71%, 0.60%, and 0.62%, at September 30, 1997, December 31, 1996 and September
30,
5
<PAGE>
1996, respectively. The table below provides information about nonperforming
assets and loans past due 90 or more days:
NONPERFORMING ASSETS
(AMOUNTS IN THOUSANDS) 9/30/97 12/31/96 9/30/96 12/31/95
- ---------------------- ------- -------- ------- --------
Nonaccrual loans $ 930 $ 686 $ 590 $ 632
Restructured loans(1) 391 418 561
------- ------- ------ -------
Total nonperforming loans 1,321 1,104 1,151 632
Foreclosed real estate(2) 1,056 726 920 1,393
------- ------- ------ -------
Total nonperforming assets $ 2,377 $ 1,830 $2,071 $ 2,025
======= ======= ====== =======
Accruing loans past due 90 days or more $ 1,231 $ 1,100 $1,647 $ 1,245
======= ======= ====== =======
(1) Does not include restructured loans that yield a market rate. At September
30, 1997, such loans totaled $97.
(2)Includes only other real estate acquired through foreclosure or in settlement
of debts previously contracted.
Nonperforming loans include loans classified as nonaccrual when it appears that
future collection of principal or interest according to contractual terms is
doubtful and loans whose terms have been restructured to provide for a reduction
or deferral of either interest or principal because of a deterioration in the
financial position of the borrower. Foreclosed real estate represents real
property acquired by actual foreclosure or directly by title or deed transfer in
settlement of debt. The Company continues to accrue interest on consumer loans
that are contractually past due 90 days or more, if in management's opinion the
interest is collectible, up to the time of repossessing the underlying
collateral or charging the loan amount against the allowance for loan losses.
The Company changes the status of loans categorized as commercial, financial,
agricultural, and real estate to nonaccrual when the loan becomes past due 90
days or more and management determines that the ultimate collectibility of the
loan is doubtful or the borrower has declared bankruptcy. All nonaccrual loans
are reduced to the lesser of the market value of the underlying real estate or
other collateral as determined by an independent appraisal or the principal
balance of the loan being placed on nonaccrual status. Accrued interest on any
loan switched to nonaccrual status is reversed. All known potential problem
loans were included in nonperforming loans for all periods presented except
December 31, 1996. Potential problem loans not included in nonperforming loans
at December 31, 1996 totaled approximately $1,400,000. Subsequent to year-end
1996, these potential problem loans were placed on nonaccrual status and
charged-off to their estimated collectible values. At September 30, 1997, and
December 31, 1996, the Company had no concentration of credits to a single
industry that exceeded 10% of total loans.
The Company maintains an allowance for loan losses to absorb potential
losses in the loan portfolio. The allowance to net loans ratio was 1.98% at
quarter-end versus 2.03% at year-end 1996. During the quarter and nine months
ended September 30, 1997, the provision for loan losses totaled $330,000 and
$1,385,000. The 1997 provision reflected increases of $20,000 and $475,000 from
1996 levels; the increased provision was necessary to cover higher charge-offs
in the commercial loan portfolio. Net charge-offs at September 30, 1997 totaled
$1,424,000, up substantially from 1996 levels. Activity in the allowance is
presented in the following table:
6
<PAGE>
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES NINE MONTHS ENDED SEPTEMBER 30
-----------------------------------
(AMOUNTS IN THOUSANDS) 1997 1996 1995
- ---------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Allowance for loan losses at beginning of year $ 3,735 $ 3,532 $ 3,257
Provision for loan losses 1,385 910 900
Charge-offs:
Commercial, financial, and agricultural 1,040 130 625
Real estate - construction 0 0 0
Real estate - mortgage 193 152 134
Consumer, including credit cards 585 429 362
-------- -------- --------
Total charge-offs 1,818 711 1,121
-------- -------- --------
Recoveries:
Commercial, financial, and agricultural 84 331 86
Real estate - construction 0 0 0
Real estate - mortgage 5 11 33
Consumer, including credit cards 305 204 276
-------- -------- --------
Total recoveries 394 546 395
-------- -------- --------
Net charge-offs 1,424 165 726
-------- -------- --------
Allowance for loan losses at September 30 $ 3,696 $ 4,277 $ 3,431
======== ======== ========
Net loans outstanding(1) at September 30 $186,493 $185,194 $164,906
======== ======== ========
Average loans outstanding at September 30 $186,168 $175,502 $159,459
======== ======== ========
Ratios:
Allowance to net loans 1.98% 2.31% 2.08%
======== ======== ========
Net charge-offs to average loans (annualized) 1.02% 0.13% 0.61%
======== ======== ========
Provision to average loans (annualized) 0.99% 0.69% 0.75%
======== ======== ========
<FN>
- ----------
(1) Net of unearned income
</FN>
</TABLE>
Management believes the allowance for loan losses was adequate at
September 30, 1997 based on conditions reasonably known to management; however,
the allowance may increase or decrease based on loan growth, changes in
internally generated credit ratings, changes in general economic conditions of
the Company's trade areas, or historical loan loss experience. These factors are
analyzed and reviewed on a continual basis to determine if any changes to the
provision for loan losses should be made. Management does not anticipate any
material charge-off activity during the fourth quarter of 1997.
OTHER ASSETS
The closing of Southeastern Bank of Florida's Hawthorne Road branch and
the subsequent transfer of the real property values to other real estate was the
primary reason for the 7.53% or $639,981 decline in net premises and equipment
at September 30, 1997 compared to year-end 1996. Southeastern Bank of Florida's
Hawthorne Road office was closed on January 31, 1997 due to its low deposit and
loan volumes and poor growth prospects; this closing had minimal impact on our
financial position. Gross premises and equipment increased last year due to the
acquisition of the Nassau County branches; the purchase of the Jonesville office
which was previously leased; the purchase of additional proof equipment for the
centralized proof center; and the equipment and preparatory costs associated
with the installation of automatic teller machines at each Nassau County
location.
Other assets increased $224,144 or 4.06% at September 30, 1997 when
compared to December 31, 1996. The increase in 1997 resulted primarily from an
increase in other real estate; a substantial portion of the increase in other
real estate was attributable to the Hawthorne Road property mentioned earlier.
During the same period in 1996, other assets increased $764,275 or 13.77%.
Increases in accrued interest receivables on loans and
7
<PAGE>
investment securities and increases in the deferred tax effects of
mark-to-market accounting for securities were partially offset by declines in
foreclosed real estate properties.
LIQUIDITY
The purpose of liquidity management is to ensure sufficient cash flow
to satisfy demands for credit, deposit withdrawals, and other corporate needs.
The Company meets most of its daily liquidity needs through the management of
cash and federal funds sold. Payments and maturities of the loan and investment
securities portfolios provide additional liquidity. The investment portfolio has
also been structured to meet liquidity needs prior to asset maturity when
necessary.
QUARTER-END DEPOSITS
The Company's core deposit base is the foundation for its liquidity
position. Total deposits declined $3,814,327 or 1.30% at September 30, 1997 when
compared to December 31, 1996. The Company's deposits, typically, experience
several cycles during a year and September is normally on the down cycle. During
the same period in 1996, total deposits increased $27,796,075 or 10.71% as a
result of the acquisition of the Nassau County branches. Interest-bearing
deposits increased $1,492,721 or 0.62% at September 30, 1997 compared to
December 31, 1996, but were offset by the decline in noninterest bearing
deposits of $5,307,048 or 9.68% during the same period. This decline in
interest-bearing deposits was similar to the decline in noninterest-bearing
deposits of $4,851,046 or 8.73% at September 30, 1996 as compared to December
31, 1995. The SMARTSAVER account, a component of saving accounts included in the
interest-bearing accounts that was introduced in March 1996, was the primary
reason interest-bearing deposits continued to increase during 1997. Savings
accounts increased $11,190,644 or 17.56% during the period ended September 30,
1997. Approximately $224,148,000 and $66,810,000 of total deposits at September
30, 1997 were attributable to SEB and SEBF, respectively.
AVERAGE DEPOSITS
Average total deposits increased $6,873,000 or 2.39% at September 30,
1997 compared to September 30, 1996. On average, the composition of deposits has
change since September 30, 1996. There was a shift from time deposits and
interest-bearing demand deposits to savings and noninterest-bearing accounts
when comparing the third quarter of 1997 to the same period in 1996. Average
noninterest-bearing deposits increased $949,000 or 1.82% at September 30, 1997
when compared to September 30, 1996. The increase in saving accounts,
$17,565,000 or 32.15%, more than offset the decline in interest-bearing demand
deposits, down $5,124,000 or 10.38%, and time deposits, down $6,426,000 or
4.87%, for the same period. The SMARTSAVER accounts were the primary reason for
the growth in the saving deposits. The composition of average deposits at
September 30, 1997 and 1996 is shown in the table below:
9/30/97 9/30/96
-------------------- -------------------
DEPOSITS AVERAGE PERCENT AVERAGE PERCENT
(AMOUNTS IN THOUSANDS) BALANCES OF TOTAL BALANCES OF TOTAL
- ------------------------------- --------- -------- -------- --------
Noninterest-bearing deposits $ 53,052 17.98% $ 52,103 18.08%
Interest-bearing demand deposits 44,246 15.00% 49,370 17.14%
Savings 72,194 24.47% 54,629 18.96%
Time deposits 125,583 42.55% 132,009 45.82%
-------- ------ -------- ------
Total $294,984 100.00% $288,111 100.00%
======== ====== ======== ======
In addition to deposits and the other liquidity sources above, the
Company utilizes short-term borrowings as needed in the form of U.S. Treasury
demand notes and federal funds purchased. The Company also has
8
<PAGE>
unsecured lines of credit for federal funds purchased from correspondent banks.
At September 30, 1997 and December 31, 1996, the Company had no amounts
outstanding under any of these lines.
The Company paid $325,000 on its note payable during the third quarter
and $1,175,000 year-to-date. Management anticipates paying the remaining
$275,000 balance during the fourth quarter. Besides assuming deposit
liabilities, the Company did not incur any debt in connection with its
acquisition of the Nassau County branches in 1996.
INTEREST RATE SENSITIVITY
The objective of interest rate sensitivity management is to minimize
the effect of interest rate changes on net interest margin while maintaining net
interest income at acceptable levels. The Company attempts to accomplish this
objective by structuring the balance sheet so that repricing opportunities exist
for both assets and liabilities in roughly equivalent amounts at approximately
the same time intervals. Imbalances in these repricing opportunities at any time
constitute interest rate sensitivity. An indicator of interest rate sensitivity
is the difference between interest rate sensitive assets and interest rate
sensitive liabilities; this difference is known as the interest rate sensitivity
gap.
The Company's interest rate sensitivity position at September 30, 1997
is presented below:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY AT SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS) REPRICING WITHIN
- ------------------------------- -------------------------------------------------------------------
MORE
0 - 3 4 - 12 ONE - FIVE THAN FIVE
MONTHS MONTHS YEARS YEARS TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INTEREST RATE SENSITIVE ASSETS:
Loans $ 79,862 $ 32,004 $ 58,972 $ 19,379 $ 190,217
Securities(1) 3,724 21,299 74,024 9,444 108,491
Federal funds sold 14,065 -- -- -- 14,065
--------- --------- --------- --------- ---------
Total interest rate sensitive assets 97,651 53,303 132,996 28,823 312,773
--------- --------- --------- --------- ---------
INTEREST RATE SENSITIVE LIABILITIES:
Deposits(2) 140,947 74,358 25,707 82 241,094
U. S. Treasury demand note 2,885 -- -- -- 2,885
Note payable 275 -- -- -- 275
--------- --------- --------- --------- ---------
Total interest rate sensitive
liabilities 144,107 74,358 25,707 82 244,254
--------- --------- --------- --------- ---------
Interest rate sensitivity gap $ (46,456) $ (21,055) $ 107,289 $ 28,741 $ 68,519
========= ========= ========= ========= =========
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ (46,456) $ (67,511) $ 39,778 $ 68,519
========= ========= ========= =========
Ratio of cumulative gap to total interest
rate sensitive assets (14.85)% (21.58)% 12.72% 21.91%
========= ========= ========= =========
Ratio of cumulative interest rate sensitive
assets to interest rate sensitive liabilities 67.76% 69.10% 116.29% 128.05%
========= ========= ========= =========
Cumulative gap at December 31, 1996 $ (37,567) $ (63,773) $ 28,934 $ 67,670
========= ========= ========= =========
Cumulative gap at September 30, 1996 $ 21,444 $ (2,835) $ 93,212 $ 128,203
========= ========= ========= =========
<FN>
- ----------
(1) Distribution of maturities for available-for sale-securities is based on
amortized cost. Additionally, distribution of maturities for
mortgage-backed securities is based on expected average lives which may be
different from the contractual terms. Equity securities are excluded.
</FN>
</TABLE>
9
<PAGE>
(2) NOW, money market, and savings account balances are included in the 0-3
months repricing category.
The Company continues to have a negative cumulative gap position
through the one-year time interval at September 30, 1997. A negative gap
position indicates that the Company has more rate sensitive liabilities than
rate sensitive assets repricing within one year. The Company's cumulative
interest rate sensitivity gap has improved since the second quarter of 1997 but
has increased since the third quarter of 1996. This increase is due to the
increase in savings accounts and more specifically the SMARTSAVERS accounts,
which reprice quarterly.
The interest rate sensitivity table presumes that all loans and
securities(1) will perform according to their contractual maturities when, in
many cases, actual loan terms are much shorter than the original terms and
securities are subject to early redemption. In addition, the table does not
necessarily indicate the impact of general interest rate movements on net
interest margin since the repricing of various categories of assets and
liabilities is subject to competitive pressures, customer needs, and other
external factors. The Company monitors and adjusts its exposure to interest rate
risks within specific policy guidelines based on its view of current and
expected market conditions.
CAPITAL RESOURCES
Realized stockholders' equity grew $2,892,300 or 9.46% at September 30,
1997 since December 31, 1996. Book value per share increased $0.75 to $10.32
during the first nine months of 1997. Dividends declared totaled $0.19 per share
for the year-to-date period compared to $0.18 in 1996, a 5.56% increase.
Unrealized losses on investment securities improved $256,729 since December 31,
1996. Unrealized stockholders' equity measures the impact of market interest
rates on investment securities classified as available-for-sale. In total,
stockholders' equity grew $2,945,970 or 8.66% at September 30, 1997 compared to
year-end 1996.
Capital adequacy is measured with a framework that makes capital
requirements sensitive to the risk profiles of individual banking companies.
Regulatory guidelines define capital as either Tier 1 (primarily stockholders'
equity) or Tier 2 (certain debt instruments and a portion of the allowance for
loan losses). The Company and its subsidiaries are subject to a minimum Tier 1
capital to risk-weighted assets ratio of 4% and a total capital (Tier 1 plus
Tier 2) to risk-weighted assets ratio of 8%. Additionally, the Company is
subject to a Tier 1 leverage ratio that measures the ratio of Tier 1 capital to
average quarterly assets. Unrecognized gains and losses on investment securities
are excluded from the calculation of risk-based capital.
The regulatory agencies have defined "well-capitalized" institutions as
those whose capital ratios equal or exceed the following ratios: Tier 1 capital
ratio of 6%, total risk-based capital ratio of 10%, and Tier 1 leverage ratio of
5%. Our capital ratios for the most recent periods are presented in the table
below:
CAPITAL RATIOS
(AMOUNTS IN THOUSANDS) 9/30/97 12/31/96 9/30/96 12/31/95
- ----------------------------- ------- -------- ------- ---------
Risk-based ratios:
Tier 1 capital 17.80% 16.18% 15.75% 16.26%
===== ===== ===== =====
Total risk-based capital 19.06% 17.44% 17.01% 17.52%
===== ===== ===== =====
Tier 1 leverage ratio 10.24% 9.42% 9.22% 9.67%
===== ==== ==== ====
Realized stockholders' equity
to assets 11.04% 10.20% 10.16% 10.30%
===== ===== ===== =====
10
<PAGE>
As shown, the decline in our capital ratios that resulted from our acquisition
of the Nassau County branches in 1996 has been reversed; current capital ratios
now exceed pre-acquisition levels.
RESULTS OF OPERATIONS
Net income for the third quarter totaled $1,309,963, a $85,043 or 6.95%
increase when compared to the same period in 1996. Net income year to date
totaled $3,369,235, down $167,609 or 4.74% from the same period in 1996 which
was up $366,049 or 11.54% over 1995. Net income per share at September 30, 1997
$0.94, was down $0.05 when compared to $0.99 on September 30, 1996, but
increased $0.10 compared to September 30, 1995. The annualized return on
beginning equity was 13.11% at September 30, 1997 versus 15.43% a year ago. The
decline in the rate of return on beginning equity is due to higher than normal
charge offs in the commercial loan portfolio resulting in an increase of
$475,000 in the provision for loan losses during 1997. See the Financial
Condition section of this Discussion and Analysis for additional details on the
loan portfolio and the increased provision.
NET INTEREST INCOME
Total interest income grew $156,789 or 2.24% in the third quarter of
1997 when compared to the same period in 1996. Total interest income for the
nine months period ended September 30, 1997 increased $835,372 or 4.12% when
compared to the same period in 1996, which increased $1,958,522 or 10.71% over
1995. Interest and fees on loans, up $614,012 or 4.13% for the nine month period
in 1997 compared to 1996, continues to be the fastest growing component in the
total interest income. The increase in the interest income is due to an increase
in the average outstanding in the loan portfolio, which was up $14,740,000 or
8.60%, because the yield(2) was down 46 basis points from last year.
Interest income from taxable securities declined during the third
quarter of 1997 compared to the third quarter of 1996, $55,368 or 3.81%. For the
nine months in 1997 interest income from taxable securities increased $174,064
or 4.33% when compared to 1996. The increase in the interest income from taxable
securities was the function of an increase in average balance, up $838,806, and
a 20 basis point increase in yield. Interest income on taxable investment
securities was up $840,249 or 26.46% at September 30, 1996 compared to 1995. The
improvement in 1996 was due to a 21.50% increase in average balance outstanding
and a 24 basis point improvement in yield. The higher average balances in 1996
were a direct result of the excess funds received from the Nassau County
branches and funds generated by other deposit growth. Interest income on
tax-exempt investment securities declined $135,266 or 13.99% year-to-date due
largely to a continuing lack of attractive replacements for redeemed securities.
The yield(2) on tax-exempt securities was 8.72% at September 30, 1997.
For the nine months ended September 30, 1997, interest income on
federal funds sold increased $182,561 or 46.32%. This increase in the interest
income on federal funds sold is a function of the average balance, up 46.40%
over the same period in 1996, and not an increase in yield, which remained
constant. Because of this increase in average outstanding balances during the
third quarter, interest income on federal funds sold increased $151,044 or
290.05% over the previous third quarter. The third quarter of 1996 saw interest
income from federal funds sold decline $53,274 over 1995's third quarterly
results. This decline was due to the placement of funds in loans and
investments.
During the third quarter of 1997, interest expense on deposits
increased $85,581 or 2.93% when compared to the third quarter of 1996, which
increased $448,962 or 18.14% over 1995. Interest expense on deposits increased
$278,015 or 3.27% for the nine-month period ended September 30, 1997 when
compared to the same period ended September 30, 1996. Deposit interest expense
for the same period in 1996 compared to 1995
11
<PAGE>
increased $1,337,289 or 18.67%. The increase in 1996 was due to the inclusion of
the Nassau County branches of SEBF. For the nine-month period ending September
30, 1997, total interest expense was up $219,179 or 2.53% compared to the first
nine months in 1996. The increase in total interest expense can be attributed
primarily to the SMARTSAVER promotion, which resulted in interest on savings
accounts increasing $113,099. Average cost of funds for deposits was 4.85% at
September 30, 1997, down 4 basis points when compared to the 4.89% at September
30, 1996. Total interest expense increased at SEBF $255,149 for first nine
months of 1997 when compared to the same period in 1996, while SEB's total
interest expense declined $54,963. The Company continued to prepay the note
payable to bank and the interest expense associated with the debt was down
$65,705 or 61.65% at September 30, 1997 compared to September 30, 1996.
Net interest income improved $94,735 or 2.35% during the third quarter
of 1997 compared to the same period in 1996. The third quarter of 1996 increased
$379,791 or 10.42% over 1995. For the nine months ended September 30, 1997, net
interest income was up $616,194 or 5.31% when compared to September 30, 1996.
During the comparable period in 1996, net interest income increased $729,533 or
6.71%. Approximately $323,363 and $376,000 of the 1997 and 1996 improvements in
net interest income were attributable to SEBF. The net interest margin(2) as a
percent of interest-earning assets was 5.47% at September 30, 1997 versus
5.27%(1) at September 30, 1996.
(1) Certain reclassifications were made to conform to current year presentation.
(2) Taxable-equivalent
OTHER INCOME
Total other income declined $24,431 or 2.49% during the third quarter
of 1997 compared to 1996. During the comparable period in 1996, other income
grew $165,301 or 20.23%. Year to date, total other income declined $118,931, at
September 30, 1997 compared to September 30, 1996. The decline in total other
income is due primarily to a decline in service charges on deposit accounts,
down $35,200 and gain on sale of other real estate owned, down $52,720. During
the same period in 1996 compared to 1995, other income increased $424,094 or
16.49%.
OTHER EXPENSE
Salaries and employee benefits were up $83,095 or 1.71% for the nine
month period ended September 30, 1997 as compared to 1996. During the year-ago
period, salaries and employee benefits were up $392,514 or 8.79%. Approximately
85% of the 1997 and 1996 salaries and employee benefits were attributable to
SEB. Net occupancy and equipment declined $18,651 during the third quarter of
1997 after increasing $95,859 during the third quarter of 1996. The increase in
1996 was related to the acquisition of the Nassau County branches of SEBF. Year
to date the net occupancy and equipment expense increased $21,216 and $214,654
in 1997 and 1996, respectively. Last year's increase resulted primarily from
higher computer maintenance costs and depreciation and additional occupancy
expenses on the Nassau County locations for the post-acquisition period. Other
operating expenses increased $76,184 or 3.52% at September 30, 1997 compared to
1996. Increased legal and accounting fees and losses on deposit accounts were
the major factors in the year-to-date results. Other operating expenses declined
$57,848 or 2.60% at September 30, 1996 compared to 1995. The decline in FDIC
insurance premiums in 1996 was partially offset by the start-up and other costs
associated with the acquisition of the Nassau County branches.
12
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(NOT APPLICABLE)
ITEM 2. CHANGES IN SECURITIES
(NOT APPLICABLE)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(NOT APPLICABLE)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(NOT APPLICABLE)
ITEM 5. OTHER INFORMATION
(NOT APPLICABLE)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits:
EXHIBIT TABLE PAGE
------------- ----
Exhibit 27 Financial Data Schedule
Submitted in electronic format only.
(b) Reports on Form 8-K - NONE
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SOUTHEASTERN BANKING CORPORATION
(REGISTRANT)
By: /s/ S. MICHAEL LITTLE
----------------------------------
S. MICHAEL LITTLE, VICE PRESIDENT
By: /s/ WANDA D. PITTS
---------------------------------
WANDA D. PITTS, SECRETARY
Date: NOVEMBER 10, 1997
14
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,660
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 14,065
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,361
<INVESTMENTS-CARRYING> 20,130
<INVESTMENTS-MARKET> 20,804
<LOANS> 186,493
<ALLOWANCE> 3,696
<TOTAL-ASSETS> 334,753
<DEPOSITS> 290,539
<SHORT-TERM> 2,885
<LIABILITIES-OTHER> 4,380
<LONG-TERM> 275
0
0
<COMMON> 4,476
<OTHER-SE> 32,474
<TOTAL-LIABILITIES-AND-EQUITY> 334,753
<INTEREST-LOAN> 15,490
<INTEREST-INVEST> 5,021
<INTEREST-OTHER> 576
<INTEREST-TOTAL> 21,087
<INTEREST-DEPOSIT> 8,777
<INTEREST-EXPENSE> 8,867
<INTEREST-INCOME-NET> 12,220
<LOAN-LOSSES> 1,385
<SECURITIES-GAINS> 20
<EXPENSE-OTHER> 8,738
<INCOME-PRETAX> 4,957
<INCOME-PRE-EXTRAORDINARY> 3,369
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,369
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
<YIELD-ACTUAL> 5.47
<LOANS-NON> 930
<LOANS-PAST> 1,231
<LOANS-TROUBLED> 391
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,735
<CHARGE-OFFS> 1,818
<RECOVERIES> 394
<ALLOWANCE-CLOSE> 3,696
<ALLOWANCE-DOMESTIC> 2,276
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,420
</TABLE>
